Obviously, all decent and right-thinking people hate government, right? So now we’re trying this:

Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply

New York City, embracing an experimental mechanism for financing social services that has excited and worried government reformers around the world, will allow Goldman Sachs to invest nearly $10 million in a jail program, with the pledge that the financial services giant would profit if the program succeeded in significantly reducing recidivism rates.

The city will be the first in the United States to test “social impact bonds,” also called pay-for-success bonds, which are an effort to find new ways to finance initiatives that might save governments money over the long term.

… Mayor Michael R. Bloomberg plans to announce on Thursday that Goldman Sachs will provide a $9.6 million loan to pay for a new four-year program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release.

…The Goldman money will be used to pay MDRC, a social services provider, to design and oversee the program. If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million….

I’ll go for the obvious joke: Hey, if you’re looking for expertise in staying out of jail, you probably can’t beat the people at Goldman. (Though really, what’s the plan for keeping these offenders from going back to prison? Millions of dollars in lobbying? I don’t think so.)

Governments elsewhere are trying this approach, though so far only Bloomberg is using Goldman. Here’s what another government official says:

In Massachusetts, Jay Gonzalez, the secretary of administration and finance, is a proponent of social impact bonds. “We’ve got to change from the idea of, ‘We just pay for stuff and hopefully get the results,'” Mr. Gonzalez said in an interview. “The beauty of this is if they perform to get the results, then we pay. If they don’t, we don’t pay.”

In New York, though, does anyone think it’s even theoretically possible that Goldman won’t be paid? Does anyone think it’s even theoretically possible that Goldman won’t find a way to make the numbers add up so Goldman wins, even if New York’s crime rate begins to approach that of Sinaloa?

Wait, I take that back. I can see a scenario under which Goldman might admit its program failed — it could happen if Goldman has created another financial instrument that gives the firm a bet against its own recidivism program. Can’t you see that happening? Goldman hedges on its own social do-gooder program, so it wins if the criminals stay clean and it wins if they don’t? Wouldn’t that be just like Goldman?

Can’t wait to watch the Criminal Default Swap market develop. Goldman will simply buy 10 derivatives based on each bond that pays them when the bond fails. Goldman will make vastly more money by returning criminals to prison than the lose – something that will require little more than lobbying for new mandatory minimum sentencing from GOP lawmakers or investing in online gun and ammo sales.

The problem with this shit is that the story is bad enough on it’s own, before this moron of a front pager misleadingly titled it and committed an overwhelmingly mendacious act of malpractice to the BJ archives. What the hell? Way to bury the lede – behind a bullshit lie, fucker.

ETA: And yet people complain about ABL running with unconfirmed stories.

In New York, though, does anyone think it’s even theoretically possible that Goldman won’t be paid?

My bet is that Goldman will sell a derivative based on the loan that pays them ten times as much for each program participant that relapses and goes back to jail. Then GS will fund a drug cartel to recruit them.

The suckers on the other end of the derivative will be Objectivists who want to make money off of private reforms of the prison system.

Though really, what’s the plan for keeping these offenders from going back to prison? Millions of dollars in lobbying? I don’t think so.

Why not? Invest millions of dollars into lobbying to decriminalize prostitution and minor drug offenses and you’d probably see your recidivism rate drop quite a bit. You’d have to time it right, but it would probably work.

it could happen if Goldman has created another financial instrument that gives the firm a bet against its own recidivism program

If they up the contract a bit so Goldman has the potential to make even higher profits, I bet they will start lobbying against the stop and frisk policy. I can’t think of an easier way to cut recidivism.

@MikeJ:
I assume that Goldmann either
1. Goldmann looked at some statistics that told them they can’t lose money on the deal
or
2. This is some way to basically bribe the people in charge by paying for programs they want but can’t afford. Bloomberg doesn’t have to use tax money and Goldmann gets away with something else.

I suspect NYC is terrified at the prospect of losing its standing as a financial capital. After all, there’s nothing to prevent the Wall Street crowd from setting-up shop, say, in Shitkicker, Arkansas. Or anywhere else on the face of the planet.

After all, there’s nothing to prevent the Wall Street crowd from setting-up shop, say, in Shitkicker, Arkansas. Or anywhere else on the face of the planet.

There is the pesky speed of light issue. Exchanges and high-speed automated trading (computers at least) need to be near each other these days. Nanoseconds add up…
So there is some inertia keeping exchanges in the places where they currently are.
(In the limit, each of the interesting centers of capitalism (financial centers) will be reduced to small hot spherical balls of competing automation. Just saying. :-) )

What bugs me about this: the benefits of better social and governmental policy should accrue to society and taxpayers. And even privatizing some financial cost of policy failure isn’t so hot because it reduces incentives for governmental policy makers to act on a real problem with broad effects if they can dismiss it as Wall Street’s problem.

We have governments to address problems that we cannot address well without. A lot of our problems with crime and penalization rose concurrently with privitization. Yes, yes, correlation isn’t causation, but I think I’m justifiably suspicious.